Chris Lennon, President & General Counsel at Empowered Startups Ltd.
Over the past decade, the approach to foreign direct investment (FDI) has evolved. Traditionally, governments often focused on attracting large enterprises to set up their businesses within the country. However, in recent years, many governments have begun to shift their thinking, focusing more on individuals with expertise in industries such as AI, quantum AI, technology and dual-use innovation. These policy changes are visible globally and are becoming important metrics for business leaders to consider if they’re looking to enter a new country or market.
The Traditional FDI Path
Historically, FDI was focused on traditional investments. Government policy reflected this, encouraging investments in natural resources, real estate and infrastructure. These sectors usually had the highest financial returns, so there was less of a focus on other areas.
Beyond the traditional investments, FDI also plays a vital role in filling investment gaps within a country. According to a report by the World Bank, these gaps can include areas like job creation, technology and knowledge transfer, access to international markets and access to global financing.
Innovation-Driven FDI
Over the last decade, there’s been a noticeable shift in government policy to attract different types of FDI. Many governments are now targeting technology, digital and science-based sectors. We’ve seen this shift encouraged by leading agencies such as the Organization for Economic Co-operation and Development (OECD), which is committed to analyzing data to understand what drives economic, social and environmental change.
The OECD FDI Qualities Policy Toolkit, developed in 2022, encourages policy reform to target environmental initiatives, job quality and skills, gender equality and productivity and innovation. A 2024 study by the OECD argued that “Foreign firms contribute to productivity, innovation and digitalisation, due to better access to capital, technology, and talent,” noting that foreign affiliates are 70% more productive than domestic firms and 80% more likely to invest in R&D.
The Human Capital Focus
This new trend in FDI also focuses on high human capital immigration. It encourages highly qualified professionals to invest or do business in foreign countries and to bring their expertise and knowledge to that market.
Today, many countries rely on immigration to address labor market challenges arising from demographic shifts and aging populations. This gives countries significant opportunities to recruit and attract international talent alongside FDI to foster innovation and promote economic growth.
Corporate Research And Development With University Collaboration
At the same time, we are seeing a drive to increase BERD (business expenditure on research and development), and there is a movement to align this with applied research at higher education institutions through industry collaborations. The goal is to funnel FDI into R&D sectors and create partnerships that encourage technological advancement. By developing R&D in the country, the intellectual property often stays in the country, alongside the innovation.
When businesses and professionals partner with universities, they bring new knowledge and technology to the host country, which often leads to job creation and supports the economic growth of the country.
FDI Strategy Around The Globe
An interesting example of evolving FDI strategies can be seen in Portugal. In a 2023 report, OECD has called the country “one of the most open economies to FDI among OECD member countries.” Portugal’s strategy is to attract RD&I investments (research, development and innovation) focused on digital, AI, health and sustainability. Because of this, Portugal has become a country that receives some of the highest levels of inward FDI according to the OECD report.
In recent years, Portugal has also introduced policies (tax incentives and a visa program) around investment projects that are focused on digitalization, innovation and qualifications. The goal is to attract highly skilled professionals who will fund research projects with higher-education institutions.
Canada is another prime example. The country has been ranked second in the G20 for doing business and is a popular choice amongst foreign investors. Given its strong economy, low taxes, support for green and environmental-focused businesses and a highly educated workforce, many businesses see the country as a strategic gateway to the North American market.
Canada also places heavy emphasis on developing leading-edge innovation with generous R&D tax incentives (such as the Scientific Research and Experimental Development tax). In 2018, the country implemented a program called IDEaS (Innovation for Defence Excellence and Security). While not directly related to FDI, the program encourages dual-use innovation, funding research that supports Canadian defense and innovative technology research. The IDEaS website notes how the technologies developed through the program are for commercial and military use, which is an interesting opportunity for domestic and foreign organizations. It strengthens Canada’s R&D ecosystem by encouraging a free flow of ideas, competitive projects and unique test environments. Aimed at academia, professionals, SMEs, non-profits and large organizations, the program demonstrates how much the Canadian government supports external innovation advancement.
The Future Of FDI
The shift in FDI from traditional investments to ones supporting innovation reflects a newer policy agenda. Many countries want FDI for sustainable innovation, talent acquisition and economic growth. As the race continues for countries to be seen as global market leaders, FDI becomes a way for them to gain influence and standing in a busy global economy.
Business leaders who understand how governments are rethinking FDI can position their companies to benefit from these shifts. By aligning your business goals with government priorities, leaders can focus on the right partnerships, participate in approved R&D initiatives and position your company for growth in new markets.
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